Argument preview: Health care, Part IV — The Medicaid expansion

Posted Fri, March 23rd, 2012 12:02 am by Lyle Denniston

Two years ago today, President Obama signed the Affordable Care Act into law. Next Wednesday, March 28, the Supreme Court will complete its hearings on constitutional issues surrounding the law. This is the fourth and final article on the blog this week, previewing the issues that the Court has agreed to review. These articles have appeared in the order that the Court is to hear the issues. This article deals with the second of two hearings scheduled for next Wednesday. The issue then will be the constitutionality of the expansion of the Medicaid program for the poor. This hearing starts at 1 p.m., and will last one hour. Paul D. Clement of the Washington law firm of Bancroft PLLC will argue first, representing the 26 states challenging the Medicaid provisions. He will have 30 minutes. He will be followed by U.S. Solicitor General Donald B. Verrilli, Jr., representing the U.S. government, also with 30 minutes. (NOTE: This blog provides a full array of background materials on the health care case, at this site.)

Background

It is a fact of life in the sometimes contentious relationship between the states and the federal government that the states, while having some success in curbing Congress’s direct dictates on how they run some of their public programs, have not succeeded in persuading the Supreme Court to put some constitutional limits on how Congress spends federal tax dollars when it hands money out to the states. Even during the years of the modern “federalism revolution,” when the Court explicitly cut back on Congress’s powers under the Commerce Clause when it went too far to control state governments, the states could not persuade the Court to do the same with congressional authority under the Spending Clause. They may have come close a time or two, but they did not succeed.

After more than a half-century of trying to find a case that might lead the Court actually to restrain the conditions that Congress can attach to federal dollars that flow to the states, 26 states now believe they have the perfect case. It is their lawsuit against one major provision of the new federal health care law — the wide expansion of the program that pays for medical care for the poor: Medicaid.

By almost any measure, Medicaid seems to be the world’s largest medical care program: it now serves upwards of 50 million Americans and that number seems on the way to doubling. It is far and away the biggest funnel of federal “grant” money to the states. With the expansion spelled out in the Affordable Care Act, the federal government’s spending on the program will rise by more than $454 billion during the current decade, and states’ spending will rise by at least $20 billion in that time, and some estimates say that the increase for the states may be more than double that figure.

With what they say are already bleak prospects for state budgets, the 26 states are making a simple plea to the Supreme Court: that they are facing financial ruin if they stay in the Medicaid program, and they have no way to back out of it and find their own way to pay for medical services for their neediest citizens. Congress, this time, has clearly gone too far, they argue, in using its powers under the Constitution’s General Welfare Clause (also more popularly known as the Spending Clause, even though the word “spending” is not mentioned specifically).

“A judicially enforceable limit on Congress’s power to use federal tax dollars to coerce states is not just consistent with this Court’s precedent; it is a constitutional necessity,” the states’ lawyers have told the Court. “And if the ACA’s expansion of Medicaid does not surpass that limit, then no Act of Congress ever will.”

The federal government has answered that “states remain free to opt out of Medicaid if they so choose…The extension of Medicaid eligibility falls well within the bounds of Congress’s power to fix the terms on which it will appropriate federal funds….Congress has broad authority to attach conditions to federal spending in order to further federal policy objectives.”

If the states were to succeed in having the Medicaid expansion struck down, government lawyers have told the Court, it would nullify not only the expansion aimed at protecting an additional 16 million poor Americans, but every other condition the government has imposed for those taking part in Medicaid, and the negative effect would spread to “an unspecified number of other federal spending programs whose terms grant recipients may find coercively generous.”

Variations of the word “coerce” appear in both of those dueling statements. And that is because a coercion theory very likely is the only one that could give the challengers to the new Medicaid provisions a chance at succeeding. It is noteworthy, and this may be to the federal government’s advantage, that the Supreme Court — though it has acknowledged that the theory does exist — has never once used it to strike down a federal spending law. And, further, not one of the federal courts that have ruled on the ACA’s Medicaid expansion has struck it down, with none agreeing that it was vulnerable under the coercion argument.

The states’ legal objection to the Medicaid provisions has also relied on another theory, but much less so. That is a theory that Congress acts unconstitutionally when it “commandeers” the officers or agencies of a state government and requires them to implement a purely federal program. It is harder to advance that theory against the Medicaid program, because all 50 states have joined in that program voluntarily, and — up until now — have largely been willing to live by the conditions that the federal government has imposed to make sure that Medicaid works as intended to deliver care to the poor.

Thus, although the states have not abandoned the “commandeering” theory in their Medicaid challenge, they are using it in the ACA case as part of and subordinate to their preferred theory of coercion.

The coercion argument can be traced initially to a comment the Supreme Court made in a 1937 decision, Steward Machine Co. v. Davis, upholding under the Spending Clause the payroll tax that was then and still is a part of the system of financing Social Security. That ruling came a year after the Court, in U.S. v. Butler, had issued one of a string of rulings nullifying New Deal programs aimed at pulling the U.S. out of the Great Depression. The Butler decision marked the last time that the Court has struck down a law enacted under Congress’s Spending Clause power. The Butler decision, however, had not relied upon the coercion theory.

When the Steward Machine ruling came along soon afterward, the Court made a passing comment about federal inducements to states to act in a cooperative endeavor to solve economic distress. The Court remarked that there might come a “point at which [federal] pressure turns into compulsion, and ceases to be an inducement.” It did not find compulsion in that instance, though. The Steward Machine comment was picked up by the Supreme Court 50 years later when the Court, in the case of South Dakota v. Dole, upheld, under the Spending Clause, a federal law that threatened to cut off federal highway funds to states unless they raised the drinking age to 21.

“Our decisions,” then Chief Justice William H. Rehnquist wrote, “have recognized that in some circumstances the financial inducement offered by Congress might be so coercive as to pass the point at which ‘pressure turns into compulsion,'” citing the Steward Machine opinion. No coercion was found in the highway funds bill. The states remained free, the Court concluded, to pass or not pass a change in their drinking-age laws. Congress might not have power to legislate a national drinking age on its own, but it had the power to encourage states to do so with financial inducement.

The 26 states, in their constitutional challenge to the new Medicaid expansion in the health care law, cited those two mentions of a coercion theory. Senior District Court Judge Roger Vinson of Pensacola, Fla., agreed that, “if the Supreme Court meant what it said in Dole and Steward Machine,…there is a line somewhere between mere pressure and impermissible coercion.” In the end, however, the judge said, unless the Supreme Court revisited its Spending Clause cases, a lower court judge could not strike down the Medicaid provisions on the coercion theory. “The states have little recourse to remaining the very junior partner in this partnership,” the judge declared. The Eleventh Circuit Court similarly accepted that the Supreme Court had acknowledged such a theory, but that court, too, failed to find coercion in the Medicaid provisions.

Petition for Certiorari

The 26 states made their challenge to the Medicaid clauses in the ACA the first question they wanted the Court to review, and they relied very principally upon South Dakota v. Dole. The Court, the petition remarked, “has long recognized that a federal financial inducement can be so massive as to leave states with no choice but to accept it, no matter how destructive to their sovereignty the attached conditions may be. This case presents an ideal opportunity to reaffirm that principle, which has been largely ignored and even expressly rejected by multiple courts of appeals. By conditioning all of the states’ federal Medicaid funding — for most states, more than a billion dollars each year — upon agreement to substantially expand their Medicaid programs, the ACA passes the point at which pressure turns into compulsion and achieves forbidden direct regulation of the states. Simply put, if that does not cross the line into improper coercion, then no statute ever will.”

The federal government urged the Court to bypass the Medicaid challenge. “No court,” its brief in opposition said, “has ever invalidated a federal funding condition on the coercion theory the state petitioners urge here. It is settled that Congress may fix the terms on which it appropriates federal funds, and since the inception of the Medicaid program, Congress has made coverage of specific categories of individuals a condition of state participation.” Congress put the states on notice that it had a right to amend the Medicaid law, and it had done so frequently to expand who could get Medicaid benefits, it argued. Moreover, the brief noted that the federal government would bear “nearly the entire financial burden” of the eligibility expansion.

The fact that there was no precedent for the actual use of the coercion theory as the states were advancing it, and that none of the federal courts that had reviewed the Medicaid expansion found that to be an invalid use of Spending Clause power, seemed to indicate that the Court would not be likely to take on that part of the states’ challenge. In addition, the Court had seen on its docket in recent years a variety of cases in which state governments had pleaded with it to apply the coercion theory to one federal program or another, and such pleas had been repeatedly rebuffed. However, when the Court accepted the ACA case for review on November 14, it accepted the states’ petition on that issue — an indication that it was at least interested in exploring whether the time had come to make the coercion theory a meaningful check on congressional authority, or, alternatively, to put it to rest once and for all.

Briefs on the Merits

The states’ brief on the merits devoted nearly one quarter of its space to a recitation of the history of Medicaid and to a detailed description of the ACA’s expansion, all clearly aimed at showing that there was, indeed, a marked shift in federal controls in the new law, and that the practical effect was to give the states no choice but to give in and run the risk of busting their budgets.

Since it began in 1965, the brief said, the Medicaid program had been a cooperative one between the national and state governments, and the states were left with wide discretion to decide who would be eligible for benefits, and what kind of benefits would be assured. But, with the ACA, the filing argued, there would be a shift to a mandatory program not just serving the “most needy,” but everyone in the country under aqe 65 whose family income is below 138 percent of the federal poverty line, including the working poor. (The ACA sets the eligibility line at 133 percent of the federal poverty line, but adds in a standard provision to disregard 5 percent of actual income, so the cutoff point is 138 percent, the brief said.) For a family of four, the government figures that the annual level of income at the poverty level in 2012 is $23,050, so 133 percent of that would be $30,657, and 138 percent would be $31,809.

When the expansion first takes effect on January 1, 2014, the federal government will pay for 100 percent of the expansion, but by 2020 the states will be required to pick up 10 percent of the extra cost. For the states, that means they would have to come up with at least $20 billion more, and perhaps twice that, according to the states’ brief. For those who do enroll in Medicaid, the document said, the states must — for the first time — assure them a minimal amount of health care benefits.

States, the brief went on, would not be able to look for ways to offset the increased costs by changing their benefit packages, as they could previously under Medicaid, but have to keep intact even the voluntary expansions they had adopted on their own in the past, on pain of losing all of the federal grant money for their Medicaid programs. And they have to keep those levels in effect in the time between now and when the Medicaid expansion takes effect, thus taking away their option of altering their programs in anticipation of the higher costs of millions of more getting the benefits, the brief said. The states thus are not just losing the flexibility they formerly had, they are being penalized for having been more generous on their own, it added.

The states, which of course are also pressing their constitutional challenge to the ACA’s individual mandate, sought to show a direct linkage between the mandate and the Medicaid expansion. Because Congress has now dictated that virtually every one have health insurance by 2014, it has set up an incentive for people to get insurance and the only place where the poor are allowed to go is to sign up for Medicaid, if their families are below the 138 percent of poverty level. Even though the poor will be excused from paying the penalty if they don’t have insurance, the mandate will push many of them onto the Medicaid rolls because Medicaid-eligible people nonetheless are obliged to obtain and maintain insurance, as the states read the law. “A program that is necessary for the satisfaction of a mandate is not voluntary,” the states said. “It is mandatory.”

The reason that Congress did not provide any other source of health insurance for the poor, the brief argued, was that Congress knew the states would choose to stay in the Medicaid program. In contrast to this element of the Medicaid expansion,the brief said, Congress in other parts of the new law allowed them some choice. For example, the brief said, states can choose to set up the new health exchanges, but, if they chose not to do so, the federal government would do it.

Since the ACA provides no other source of insurance for the poor but Medicaid, that is the option the poor will be taking — with 16 million or more likely to become enrolled in the program, the brief said. The ACA creates state-level health insurance exchanges, where people not eligible for Medicaid can shop for affordable insurance, but those are not open to the poor below the 138 percent of poverty level, the states pointed out. If an individual does go to an exchange seeking a policy, the brief noted, the ACA will automatically divert that person to Medicaid if the family’s income is below the level of poverty specified.

All of those elements, individually and in combination, the states’ merits brief contended, show that Congress gives the states no option but to go along with a program that is fundamentally altered from what Medicaid has been. With Congress agreeing to put up 100 percent of the cost of the expansion at the outset, the brief said, “there is no plausible argument that a state could afford to turn down such a massive federal inducement, particularly when doing so would mean assuming the full burden of covering its neediest residents’ medical costs.” States cannot raise taxes to take up that burden on their own, the brief argued, and one reason they can’t is that the federal government already taxes each state’s residents heavily. If a state opts out of Medicaid, the federal taxes its residents pay would go to help fund Medicaid in states that stayed in the program, the states said.

Finally, anticipating an argument by the federal government that other federal spending programs would be put in jeopardy if the Medicaid expansion is struck down, the states’ brief outlined a variety of reasons why the Court need not be concerned about that, all pointing to the conclusion that “this coercion challenge is in a class of its own.” Here are the special reasons it cited: “Congress’ express linkage to an unprecedented mandated, Congress’ manifest assumption that no state could or would opt out, the sheer size of the federal inducement at stake, Congress’ refusal to limit the new conditions to new funds, and Congress’ evident intent to coerce the states.”

The federal government’s brief on the merits also started out with its own version of the history of Medicaid, and of what Congress had done in the ACA’s expansion of the program. This was designed in the main to show that, as Congress over the years expanded the ranks of those eligible, the states stayed in the program even as they knew they had to follow the requirements laid down by federal officials and agencies. If the Court reads that history as it seemingly was intended, it would draw the conclusion that the states had grown accustomed to being willing participants, and perhaps even as “junior partners,” until they were faced with the politically unappealing choice of raising taxes if they were to choose to opt out and go it alone in caring for the poor.

To the states’ point that they were being required to give up their own discretion about who was eligible, the government brief in essence suggested that the choices that many states had made had contributed to the rising ranks of the uninsured across America, leaving Congress with the job in the ACA of finding ways to get them insured. Given the option to get federal funding for Medicaid for individuals with somewhat more family income, the government brief said, 17 states chose to limit their Medicaid rolls to working parents below 50 percent of the poverty line.

On the facts of the Medicaid expansion, the federal document disputes some of the states’ assertions about what benefit packages they are obliged to offer under the new scheme. But perhaps the strongest rebuttal the government’s version of history offered was to the states’ complaint that they will be hit with huge financial obligations when the expansion takes effect. The federal government will bear “nearly the entire cost of medical assistance” for those who newly enter the program, and states will not be faced with paying any more than 10 percent of that cost even when the expansion is fully effective, the brief said. By contrast, up to now, the federal government has been picking up only 57 percent of the state’s costs on average, the brief noted. Moreover, it added, federal funds will cover 90 percent of the administrative costs in deciding who is eligible for Medicaid, whereas before it has covered only 50 percent.

With the expansion, the U.S. brief said, states will be facing an increase of less than 1 percent, and even that will be offset by some cost savings written into the ACA, such as shifting some adults from Medicaid to insurance obtained in the new health exchanges. Overall, the document said, “state spending will be approximately $100 billion lower through 2019 than it would have been without the changes made by the Act.”

Taking on the states’ coercion arguments, the government brief initially stressed the authority of Congress to fix the terms for handing out money to the states. It noted that the states have not argued that any of the changes made in Medicaid are not designed to deal with an actual perceived problem, and have not contended that the conditions lack specificity or clarity. If it has no such defects, then the expansion is clearly within Congress’s Spending Clause power, the brief said.

When Congress in the ACA spelled out new categories of individuals who were to benefit from Medicaid, the government asserted, it was only laying down the terms on which it would be sending money to the states. There is no compulsion for the states to remain in the program, and there is no “commandeering” of their officials or agencies in order to serve a purely federal program. The brief stressed anew the fact that, all along, the states have known that the terms fixed for receipt of federal funds might be amended, as they have been, repeatedly.

The coercion theory being advanced by the states, the U.S. argued, has it wrong. While the states are arguing that the more money the federal government puts into a federal-state program, the less option they have to turn it down, the brief said that this line of reasoning actually amounts to saying that the more money the government sends to the states, the less say it can have in how it is spent. “No court has accepted such an argument, and for good reason,” the document contended.

“However attractive the offer of federal Medicaid funding may be, the decision whether to accept it always belongs to the states, and not the federal government. [The states’] claim of coercion is nothing more than an argument that the citizens of their states would hold them politically responsible for either the reduction in benefits that would result from opting out of Medicaid or for the increased taxation needed to fund those benefits entirely at the state level. That argument turns notions of political accountability and state sovereignty upside down, for it rests on the assumption that states lack the capacity or the will to accomplish on their own what their citizens desire, and therefore have a right under the Constitution to have courts dictate the terms on which the federal government provides assistance,” the brief said.

Pressing on, the brief argued that there “is no logical stopping point” to the states’ argument, and so it would threaten a wide array of government spending programs that involve substantial sums of money.

To the states’ argument that Congress acted coercively toward the states because it knew they could not drop out of Medicaid, the U.S. brief said such an expectation in Congress would hardly be a surprise, since the states have taken part in the program for decades, and Congress had no reason to expect that to change. “Such an expectation is hardly proof of coercion,” it summed up.

The dominant theme of amicus briefs supporting the states is the fear of compromising, or totally undermining, the rights of the states in a federal system, with at least one group sounding “the death knell for federalism” along with a group of Texas state legislators contending that the Medicaid changes are an attempt to “clobber states into submission” and a physicians and surgeons group protesting that Congress was “plundering the treasuries of the states.” The Cato Institute and other libertarian or conservative groups argued that the Medicaid expansion is nothing more than a federal seizure of state police power “under the guise of conditions on federal spending.”

A group of 101 economists who have studied the health care market laid before the Court their detailed analysis of the impact on states’ budgets if they were to turn down Medicaid funding by opting out of the program. More than $1 out of every $5 of state budgets overall, their study showed, is already devoted to financing Medicaid benefits. The economists insisted that states simply could not fill the gap if they opt out, thus indicating they have no choice but to stay in to get the federal money.

Among the amici supporting the Medicaid expansion is a long list of groups that advocate for the rights of the poor, and, particularly of the “working poor” whose incomes are somewhat above poverty level, and yet are said to be woefully underserved in their medical care needs. There are organizations that advocate for children, the disabled, racial minorities, HIV/AIDS victims, and labor unions, each defending Medicaid changes of interest to their constituencies. A number of those groups expressed concern over the threat to many laws passed under Congress’s Spending Clause authority.

The Democratic leaders of the House and Senate and of congressional committees joined in the case to urge the Court not to adopt any version of the coercion theory, largely on the premise that working out the application of that theory would drag the judiciary into making political judgments that legislators should be left free to make. A group of 539 state legislators, some from each of the 50 states, also joined in the case to warn the Court that the states objecting to the Medicaid expansion were only interested in having the Court rewrite the law more to their liking. Thirteen states filed a brief to directly dispute the theory that the Medicaid revisions will, in fact, change the nature of the program.

Analysis

In taking on the states’ challenge to the Medicaid expansion, the Court may have felt an institutional obligation to sort out the coercion theory after all these years. It has clearly embraced the theory in the past, but only in a quite abstract way, almost as if it were something necessarily held in reserve, but never to be actually employed except as a caution to federal legislators. But it has to be fully aware, not only because of the claims now before it against the Medicaid changes in the ACA, but also because of a continuing flow of state challenges over the years, that the theory is not a dead issue, at least not with a good many states.

What the hearing on Medicaid may entail, then, is a fairly intense examination by the Court of the constitutional origins of the theory, what it may do to separation-of-powers concerns, and — despite the states’ attempt to reassure the Court that this won’t happen — what other kinds of federal spending programs could be put in jeopardy if the coercion concept is given practical new force. The government, somewhat inexplicably, has not sought to raise to a very high pitch the potential threat to other programs, but most of the amici on the government’s side have endeavored to do so. The argument by the states that they really are seeking only to use a coercion theory for this one federal program does not sound entirely convincing, when one realizes that the states for years have been chafing under some of the conditions attached to federal programs in which they participate.

Whatever the Court may wind up thinking about the coercion theory on its own merits, the Justices may well wonder why it is that the concept has not drawn more support in the lower courts. The Court, of course, has mentioned it itself only rarely, but it did so quite prominently in the case of South Dakota v. Dole at a time when the Court’s sensitivity about state sovereignty was at a recent peak. That would seem to give it a measure of jurisprudential prestige, and yet the lower courts have not felt the need to engage it in depth.

Now, with “limited government” sentiment very much a topic of frequent and sometimes angry public discourse, the Court has to know that the coercion theory has a fair amount of political push behind it. With states taking on an increasingly political role in challenging “big government,” the Justices are probably going to be hearing more about the theory from now on. But if they are aware of the ferment surrounding the theory, and they must be at least after reading the briefs on the Medicaid issue, it may make it somewhat more difficult for the Court, even if it were inclined to do so, to cast aside the theory altogether. That could produce an uproar, perhaps loud enough to be threatening to the Court’s desire to stay out of politics.

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Conference of December 7, 2018

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On November 13, Justice Sonia Sotomayor, Judge Jennifer Walker Elrod of the U.S. Court of Appeals for the 5th Circuit and Judge Susan Carney of the U.S. Court of Appeals for the 2nd Circuit presided over the final round of the 2018 Ames Moot Court Competition at Harvard Law School.